Major Canadian Economic Indicators Expected Next Week

By Vivien Lou Chen

Expect uncertainty over U.S. economic policy to remain high as long as policy gyrations continue, says economist Steven Davis

It had become something of a cliché to say that investors hate uncertainty - at least until the confusion surrounding President Donald Trump's on-again, off-again tariff plans left them grasping for a way to quantify the unpredictably that has contributed to violent moves in stocks, bonds and other assets in 2025.

Market participants are trying to determine whether tariff-driven uncertainty is at or near a peak, which has major implications for investors and traders looking to get ahead of the next major round of volatility. If the U.S. has reached or is close to this peak of uncertainty, that could mean recent selloffs in stocks, and perhaps bonds, have gone as far as they can go. By contrast, if the peak is still a ways off, there might still be room for future selloffs to run.

Strategists and economists at a number of financial firms have latched on to the Economic Policy Uncertainty Index, which was introduced in the early 2010s and is having a moment in the sun.

The Economic Policy Uncertainty Index rose past 600 as of last Saturday, the most recent day for which weekly data can be compiled - surpassing the level of just above 500 reached in March 2020 at the start of the COVID-19 pandemic. The latest weekly average of daily values is shown below, illustrating how rising trade tensions are pushing uncertainty about U.S. economic policy practically off the chart.

The Economic Policy Uncertainty Index 'is one of our preferred measures of uncertainty.'Adam Schickling, senior economist at Vanguard

"We won't know whether we've hit peak uncertainty, because it very much depends on what happens to policy," said Steven Davis, director of research at Stanford University's Hoover Institution and one of the co-creators of the index. "If we continue with on-again, off-again policies, then uncertainty will remain quite high and will continue to be in place as long as there are policy gyrations."

There are three main takeaways from this reading, according to Davis. One is that higher uncertainty means consumers will pull back on spending, particularly on durable goods and discretionary items. The second is that "businesses will cut or defer investments because they can't make sensible decisions about where to invest, what products to produce and so on." And the third is that there will be less demand for labor and fewer job opportunities.

Stocks, bonds and other assets have seen wild swings since Trump's April 2 unveiling of his tariff plans. The S&P 500 SPX slumped by more than 12% in the following four sessions for its worst four-day performance since the early days of the pandemic five years ago, before rallying 9.5% on April 9 for its biggest one-day gain since October 2008.

Stocks remain well below their April 2 levels, with the S&P 500, Dow Jones Industrial Average DJIA and Nasdaq Composite COMP posting losses in a holiday-shortened week ahead of Good Friday that was marked by Federal Reserve Chair Jerome Powell's stark assessment of how tariffs may lead to rising inflation and slowing growth.

Investors began 2025 with hopes that the U.S. economy would remain in good shape under a second Trump administration, which was expected to produce deregulation, tax cuts and other market-friendly measures. Instead, worries about U.S.-imposed tariffs and retaliatory moves by other countries have fanned recession fears.

In March, the S&P 500 SPX and Nasdaq Composite COMP both ended the first three months of the year with their worst quarterly performances since 2022. Meanwhile, U.S. government debt mostly rallied during the first quarter, reflecting the traditional flight-to-safety moves seen during periods of fear or uncertainty.

Many people assumed that Trump's April 2 announcement of what he referred to as reciprocal tariffs on goods from other countries would mark the peak of uncertainty and provide clarity about the path ahead. That didn't happen. Instead, the tariffs announced on what Trump called "liberation day" were larger than expected and worse than the worst-case scenario penciled in by most analysts.

Uncertainty has only continued to climb despite Trump's April 9 decision to implement a 90-day pause on tariffs for most countries, except China.

What's different about the current spike in uncertainty compared with past periods, such as the start of the global financial crisis in 2008 and the 2020 pandemic, is that it has been "entirely engineered by ill-advised policy decisions," Davis said. "It's not like some other forces caused this. There's astonishment at how much havoc can be wreaked by one president, who may not be listening to his advisers or may not be getting very good advice."

For their part, Trump and administration officials say the long-term benefits of reordering of the global trading system are worth the near-term pain.

Alarm from investors

Financial-market participants typically react to a big jump in uncertainty with a flight-to-safety response that leads investors to clamor for U.S. assets, which pushes up Treasury bond prices and the dollar, Davis said via phone.

Investors were alarmed when the opposite happened last week: The 10-year Treasury note BX:TMUBMUSD10Y and 30-year bond BX:TMUBMUSD30Y aggressively sold off, which produced the largest weekly increase in yields seen in decades. And the dollar fell sharply versus major rivals, with the ICE U.S. Dollar Index DXY touching a three-year low last Friday.

"The way I read it is that many investors are having doubts about the reliability of the U.S. as a trading partner and the U.S.'s ability to deliver sensible policy-making decisions," Davis said. "We're still not out of the woods, and the likelihood of a recession has gone up a lot since [Trump's] inauguration."

Davis - along with Scott Ross Baker, an associate finance professor at Northwestern University's Kellogg School of Management, and Nick Bloom, a Stanford economics professor - created the Economic Policy Uncertainty Index in response to the policy uncertainty that arose from the aftermath of the 2008-09 financial crisis. Colloquially referred to as Baker, Bloom and Davis, the trio had their first moment in the spotlight more than a decade ago under the administration of President Barack Obama, when their index was used to analyze the economic impact of the Affordable Care Act of 2010.

Part of what makes their index unique is the way it is put together.

When developing the index, Baker, Bloom and Davis relied on dozens of people to read thousands of randomly selected newspaper articles. The trio then created computer instructions based on the way a human being would normally read a story, which helped them to optimize computer calculations.

The daily measure of the Economic Policy Uncertainty Index draws on a news database that follows more than 1,000 U.S. newspapers. The index is based on the number of articles that contain at least one term from each of the following three sets: "economic" or "economy"; "uncertain" or "uncertainty"; and "legislation," "deficit," "regulation," "congress" "federal reserve" or "white house."

Studies have found that U.S. economic-policy uncertainty tends to lead to delays in investments, hiring and capital spending - all of which can add up to greater financial-market volatility. Uncertainty in general has been described by Mark Carney, the former Bank of England governor who is now Canada's prime minister, as a "form of economic post-traumatic stress disorder."

This may be why so many people are turning to the Baker, Bloom and Davis index. Those people include strategists Blake Gwinn of RBC Capital Markets and Adam Turnquist of LPL Financial, as well as economists like Lindsey Piegza and Lauren Henderson of Stifel, Nicolaus & Co. and Adam Schickling of investment giant Vanguard.

"We know that uncertainty affects the economy, everything from how businesses invest for the future to the everyday purchasing decisions of consumers. How to measure uncertainty is less obvious. It's not directly measurable like interest rates, inflation or unemployment," Schickling wrote in an email to MarketWatch.

The Economic Policy Uncertainty Index "is one of our preferred measures of uncertainty," Schickling said, referring to the monthly version of the index that also includes tax-policy changes and dispersions in professional economic forecasts. "We incorporate this uncertainty measure in several of our economic models to understand how elevated levels of uncertainty affect business investment, consumer discretionary spending and job growth, just to name a few."

The index can be a valuable forecasting tool, but "it's important to remember the utter complexity of a large economy like the United States that can be more sensitive or less sensitive to increases in policy uncertainty depending on the broader economic environment," he added.

Gwinn, RBC Capital's head of U.S. rates strategy, said the index "gives some weight and visual appeal to something we all know to be anecdotally true anyway: Uncertainly has been rapidly rising."

He and another strategist, Izaac Brook, concluded in a note released last week that heightened tariffs and broader uncertainty have "closed the path to our prior, more optimistic, base case."

And at LPL Financial, Turnquist, the chief technical strategist, said the index is "one of the things that we are watching because for the stock market - in our view, at least - to have a sustainable bottom, policy uncertainty needs to peak. We do think we are at or near or past the stage of peak policy uncertainty, but there are not many ways to measure this on a quantitative basis."

Challenging the nation's central bankers, Japan's widely quoted core consumer price index (CPI), which excludes fresh food, rose 3.2% from a year ago in March, accelerating from a 3% on-year rise in February, the Statistics Bureau reported Friday.

The Bank of Japan has a 2% annual inflation target on the CPI-core, but inflation has consistently, if moderately, posted above the goal since early 2023.

Japan's consumers in March were hit by soaring prices for the staple rice, up 92.1% on year, following weak crop harvests.

Japan's headline CPI, which includes all items, rose 3.6% on year in March, cooling marginally from the 3.7% on-year gain in February.

The nation's CPI "core-core," which excludes fresh food and certain energy charges, rose 2.9% in March on year after a 2.6% on-year rise in February, reported the Statistics Bureau.

There were some positive notes in the inflation report; the price of services rose a mild 1.4% in March on year, while residential rents gained only 0.4% on year.

To battle inflation, the Bank of Japan has lifted its key interest rate, in stages, from a negative 0.1% in January 2024 to 0.50% in January 2025, and also slowed down its program of buying Japanese government bonds.

In its mid-March meeting, the central bankers paused on rate hikes, citing economic uncertainty, in part associated with the Trump Administration's tariffs.

The Bank of Japan has reiterated its support of keeping demand strong enough that real wages increase, leading to stronger consumer spending and more domestic economic growth.

At its March policy session, the Bank of Japan affirmed its January outlook, that "underlying CPI inflation is likely to be at a level that is generally consistent with the price stability target" by the second half of fiscal 2025, which started on April 1.

The next Bank of Japan monetary policy session and decision is slated for the end of April.

The Shanghai Composite Index is up 38.50 points or 1.19% this week to 3276.73

• Largest one-week point and percentage gain since the week ending March 14, 2025
• Snaps a four-week losing streak
• Today it is down 3.61 points or 0.11%
• Largest one-day point and percentage decline since Monday, April 7, 2025
• Snaps a eight-trading-day winning streak
• Off 46.21% from its record close of 6092.06 hit Tuesday, Oct. 16, 2007
• Off 6.10% from its 52-week high of 3489.78 hit Tuesday, Oct. 8, 2024
• Up 21.18% from its 52-week low of 2704.09 hit Friday, Sept. 13, 2024
• Rose 6.90% from 52 weeks ago
• Off 4.46% from its 2025 closing high of 3429.76 hit Tuesday, March 18, 2025
• Up 5.82% from its 2025 closing low of 3096.58 hit Monday, April 7, 2025
• Month-to-date it is down 1.77%
• Year-to-date it is down 75.03 points or 2.24%

Source: Dow Jones Market Data, FactSet

The KOSPI Composite Index is up 50.70 points or 2.08% this week to 2483.42

• Largest one-week point and percentage gain since the week ending March 21, 2025
• Snaps a three-week losing streak
• Today it is up 13.01 points or 0.53%
• Up for two consecutive trading days
• Up 35.99 points or 1.47% over the last two trading days
• Largest two-day point and percentage gain since Tuesday, April 15, 2025
• Up four of the past five trading days
• Off 24.86% from its record close of 3305.21 hit Tuesday, July 6, 2021
• Highest closing value since Thursday, April 3, 2025
• Off 14.11% from its 52-week high of 2891.35 hit Thursday, July 11, 2024
• Up 8.27% from its 52-week low of 2293.70 hit Wednesday, April 9, 2025
• Down 4.18% from 52 weeks ago
• Off 7.04% from its 2025 closing high of 2671.52 hit Wednesday, Feb. 19, 2025
• Up 8.27% from its 2025 closing low of 2293.70 hit Wednesday, April 9, 2025
• Month-to-date it is up 0.09%
• Year-to-date it is up 83.93 points or 3.50%

Source: Dow Jones Market Data, FactSet

The NIKKEI 225 Index is up 1144.70 points or 3.41% this week to 34730.28

• Largest one-week point and percentage gain since the week ending Jan. 24, 2025
• Snaps a three-week losing streak
• Today it is up 352.68 points or 1.03%
• Up for two consecutive trading days
• Up 809.88 points or 2.39% over the last two trading days
• Largest two-day point and percentage gain since Friday, April 11, 2025
• Up four of the past five trading days
• Off 17.75% from its record close of 42224.02 hit Thursday, July 11, 2024
• Highest closing value since Thursday, April 3, 2025
• Off 17.75% from its 52-week high of 42224.02 hit Thursday, July 11, 2024
• Up 11.54% from its 52-week low of 31136.58 hit Monday, April 7, 2025
• Down 6.31% from 52 weeks ago
• Off 13.35% from its 2025 closing high of 40083.30 hit Tuesday, Jan. 7, 2025
• Up 11.54% from its 2025 closing low of 31136.58 hit Monday, April 7, 2025
• Month-to-date it is down 2.49%
• Year-to-date it is down 5164.26 points or 12.94%

Source: Dow Jones Market Data, FactSet

By Jessica Fleetham and Jihye Lee

Below are the most important global events likely to affect FX and bond markets in the week starting April 21.

Provisional U.S. purchasing managers' surveys for April will be closely watched for signs of how businesses are reacting to President Trump's announcement of sweeping tariffs. Equivalent surveys will also be released in the eurozone and the U.K. in an otherwise quiet week due to the Easter holidays.

In Asia, a central bank decision in China is in focus as policymakers seek ways to support the economy amid an intensifying tariff battle with the U.S. Regional CPI prints will offer clues on monetary policy paths, with Japan's inflation data in the spotlight as it holds trade talks with Washington. Elsewhere, market watchers will track South Korea's growth figures and a rate decision by Indonesia's central bank.

U.S.

Markets have calmed for now after recent extreme volatility due to President Trump's announcement of sweeping tariffs, but uncertainty and concerns over a potentially severe economic impact remain.

Trump later announced a 90-day pause on higher so-called reciprocal tariffs against most countries, although a 10% baseline levy remains in place as well as steep tariffs on imports from China.

Investors will therefore be scrutinizing early indications of how this has impacted the sentiment of businesses and consumers. In that regard, Wednesday's provisional purchasing managers' surveys on manufacturing and services sector activity in April will be closely monitored.

"The PMI report will be very interesting amid the growth concerns from the trade uncertainty that could show up in lower new orders," analysts at Danske Bank said in a note.

Confidence and behavior of U.S. consumers will also be key to watch to assess the likelihood of a severe slowdown in the U.S. economy, they said.

Some indications on consumer behavior will be provided in Friday's final University of Michigan consumer survey for April, as well as new home sales for March on Wednesday and existing home sales data on Thursday.

Other data include durable goods figures for March and weekly jobless claims on Thursday.

The Treasury will auction two-year notes on Tuesday, five-year notes on Wednesday and seven-year notes on Thursday.

CANADA

Canadian retail sales data for February will be released on Friday.

Although backward-looking, the figures will give a further snapshot of how the economy was performing ahead of U.S. President Trump's tariff announcements.

Canada's economy is particularly vulnerable to tariffs from its closest trading partner. The Bank of Canada left its main interest rate at 2.75% at its most recent decision following seven consecutive cuts, but stressed that it will monitor carefully all the "risks and uncertainties" facing the Canadian economy in relation to U.S. trade tariffs.

EUROZONE

Flash estimate purchasing managers indexes for April for France, Germany and the eurozone on Wednesday will be the highlight of a light data calendar.

The PMI data, a key indicator of manufacturing and services-sector activity, should give insight into companies' outlook in light of the tariff turmoil.

"The PMIs will be the first big test of the potential impact of Trump's tariffs announcements on growth," analysts at RBC Capital Markets said in a note. "We will be looking carefully to see if new export orders are hit, although it may be too soon to see the full impact in April."

Another key forward-looking indicator will be the eurozone flash consumer confidence indicator for April, due Tuesday. France's consumer confidence survey and Germany's Ifo business climate index, both also for April, will be released Thursday.

Germany will launch new June 2027-dated treasury notes, or Schatz, on Tuesday, with 5 billion euros on offer. On Wednesday, Germany will sell 4 billion euros in the February 2035 Bund. Other issuers include Slovakia on Tuesday and Italy on Thursday.

U.K.

Provisional U.K. purchasing managers indexes on manufacturing and services sector activity in April will be released on Wednesday. These could give a sense of how the announcement of U.S. tariffs has affected sentiment and exports.

"The obvious risk is the impact on sentiment of the U.S. tariff announcement earlier this month though we would point out that the U.K.'s services exports to the U.S. remain tariff free so the direct impact should be limited," RBC Capital Markets economists said in a note.

Retail sales data for March and the April GfK consumer confidence survey on Friday could give indications of the tariff impact on consumers.

The U.K. plans to sell October 2043 gilts on Thursday.

CHINA

China's central bank is expected to announce a key lending rate on Monday, as markets watch for signals on how authorities plan to navigate a tariff-hit economy.

Economists say further monetary easing is warranted, but expect loan prime rates-the benchmark for many household, corporate and property loans-to remain unchanged.

"Low inflation and strong external headwinds amid escalating tariff threats provide a strong case for easing," ING economists wrote. "But currency stabilization considerations may prompt the People's Bank of China to wait until the U.S. Federal Reserve cuts borrowing costs."

The one-year loan prime rate is expected to hold at 3.1% and the five-year at 3.6%. ING does not anticipate any change to the LPR without a cut to the 7-day reverse repo rate first.

Markets will stay alert for any policy signals out of Beijing following officials' comments that they're open to dialogue with the U.S. based on mutual respect. President Trump has also voiced optimism, saying he is confident that a deal can get done.

JAPAN

Tokyo's consumer price data-often a bellwether for national inflation-is due Friday and expected to reflect price hikes by companies at the start of Japan's new fiscal year in April.

Core consumer inflation in the capital, excluding fresh food, is forecast to have risen 3.2% in April from a year earlier, up from 2.4% in March, according to a poll of economists by data provider Quick.

The Bank of Japan will release its semiannual financial system report on Wednesday, analyzing risks to the banking sector and checking for asset price imbalances.

The Ministry of Finance is scheduled to auction 2.6 trillion yen in two-year sovereign notes on Thursday. Given the tenor's sensitivity to rate expectations, investor appetite

may be limited.

The BOJ is scheduled to conduct outright purchases of Japanese government bonds on Monday and Friday to support the country's bond market. On Monday, the BOJ is slated to purchase JGBs with maturities of over 1 year up to 25 years. On Friday, the central bank will buy JGBs with maturities of over 3 years up to 25 years, plus inflation-indexed bonds.

AUSTRALIA/NEW ZEALAND

Australia's flash PMI data on Wednesday will provide insights into how tariff tensions are weighing on business sentiment.

The March release suggested declining confidence among Australian businesses about future activity, with some citing trade uncertainty as a key risk, said Jingyi Pan of S&P Global Market Intelligence.

New Zealand will report trade data on Tuesday, offering a view of export performance in March.

SINGAPORE

Investors will be watching Singapore's March CPI figures on Wednesday for signs that core inflation continues to soften.

Goldman Sachs expects headline inflation to have climbed to 1.2% on year in March from 0.9% in February.

In its last policy statement, the Monetary Authority of Singapore cut its 2025 inflation forecasts, now seeing core and headline inflation averaging 0.5%-1.5%, down from earlier projections of 1.0%-2.0% and 1.5%-2.5%.

The central bank cited weaker-than-expected inflation in January-February and an anticipated moderation in price growth amid a softening economic outlook.

SOUTH KOREA

South Korea's economy likely stagnated in the first quarter of 2025, according to a WSJ poll of economists.

The median forecast shows zero year-on-year GDP growth in 1Q, following a 1.2% expansion in 4Q. On a quarterly basis, GDP is seen rising 0.1%, matching the pace of the previous quarter.

Economists point to the drag from U.S. tariff tensions, large-scale wildfires and political instability stemming from the president's impeachment as likely weighing on consumer sentiment and economic activity.

The 1Q GDP report is due Thursday

INDONESIA

Bank Indonesia is widely expected to hold interest rates steady at its meeting on Wednesday amid ongoing rupiah volatility and economic uncertainty.

Currency depreciation pressures make a rate cut unlikely for now, though easing may come later in the year, S&P Global Market Intelligence said.

BI is likely to prioritize currency stability over growth concerns, Citi Research analysts wrote. Talks between the U.S. and some of its trading partners suggest tensions may be easing, and a softer dollar could support the rupiah.

Monday's March trade data will be closely watched for signs of volatility. A U.S. decision to move ahead with tariffs after a 90-day pause could shave 0.5% off Indonesia's GDP this year, according to DBS's Radhika Rao.

"While the tariff overhang remains, domestic constraints need to be ironed out to boost the recovery impulse," Rao said.

MALAYSIA

Malaysia's March CPI, due Wednesday, is expected to show a mild uptick in inflation-unlikely to rattle the central bank given the overall price stability over the past year.

Headline inflation likely rose to 1.8% in March from 1.5% in February, driven by modest increases in food, healthcare, and transport costs, ANZ analysts said.

Looking ahead, downside risks to inflation remain amid weaker commodity prices and slowing global growth, which could offset any impact from potential fuel subsidy cuts.

U.S. tariffs may present an upside risk, but Malaysia is likely shielded in the short term by a stable ringgit that helps limit import cost pressures, said economists at Kenanga Investment Bank.

-Any references to days are in local times.

Write to Jessica Fleetham at jessica.fleetham@wsj.com and Jihye Lee at jihye.lee@wsj.com